Executive Compensation

The objective of a properly designed executive compensation package is to attract, retain, and motivate CEOs and senior management. Despite substantial heterogeneity in pay practices across firms, most CEO compensation packages contain five basic components: salary, annual bonus, payouts from long‐term incentive plans, restricted option grants, and restricted stock grants. In addition, CEOs often receive contributions to defined‐benefit pension plans, various perquisites, and, in case of their departure, severance payments It has been seen that the increase in executive compensation has far outweighed the rise of regular employee compensation the objective of this paper is to investigate the pay-for-performance link in executive compensation.
In the context of executive compensation, an analysis needs to be undertaken both from an economic as well as a regulatory policy perspective. To provide a holistic understanding both global as well as Indian Organisations are considered for the analysis.

From the economic perspective we look into the following
• Executive Compensation and Agency Problem
• Executive Compensation and Risk Management
• The sensitivity of CEO wealth to firm performance
• The relation between CEO incentives and firm value
• Explaining CEO compensation: Rent extraction or competitive pay?
From the regulatory and legal perspective
• Regulatory controls as under o SEC o SEBI
• Tax Code Changes o Tax Law 162(m) signed in 1993 of the Federal tax Code
• Legal Provisions o Amendments to the Companies Act ,1956 o Natural law
• Disclosure Rules
• Say On Pay
• Clawbacks
Further to look into the recent empirical studies to understand the present industry situation.
• Disclosure Rules
The Securities and Exchange Commission (SEC) has focused its regulatory efforts since the
Securities Acts of 1933, including the aforementioned…...

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...ARE TOP EXECUTVES WORTH WHAT THEY ARE PAID?
Introduction
“Republic Bank Executives getting million$- Workers Getting Crumbs!!”- This is at a time when Bank Directors fees are increased by 85 percent to nearly 1 million dollars in one year alone (Trinidad Guardian, February 25,2011).
“While Republic Bank Biggies could look forward to a bigger parting gift than $10 Million and FATTER PENSION(BIGGER BANK/BIGGEST PROFITS=BIGGER GIFT/FATTEST PENSION) , a republic bank worker after 30 years service gets an average MONTHLY PENSION OF $2,400.00 and a pat on the back.”
It is headlines like the one stated above that continues to bombard the media in recent times. Executive remuneration is one of the most hotly debated topics in the Human Resource (HR) world. Bergmann and Scapello (2002) argue that during the reign of Julius Caesar, centurions received attractive incentives. However, they stressed that longevity of an idea does not mean a lack of controversy surrounding it.
In the aftermath of the financial crash and recession 2007-2009, the debate of the executive compensation again has surfaced to the forefront by the media and became the hot issue for academicians, researchers, regulators, policy makers and public.
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...C. Lindsay
Executive Compensation
Legal & Ethical Issues In Management (MGT 623)
Oct. 27, 2012
Executive compensation a very controversial matter, and there are plenty of mixed feelings about it, but according to the ethics tool kit, it can be analyzed in two different way; freedom and responsibility. If a person is the CEO of a company, and that company belongs to him/her, he/she should have the freedom to give money when they want, take money when they want, and grant bonuses. The issue here is that that is not always the ethical approach. A company is run by its employees, but according to the Halbert and Ingulli, the trend in big companies has been to grant executives with more money and give their employees the bare minimum. As an executive/CEO of a company one of your main goals should be to make sure that your employees are happy, simply because a happy employee is more productive, and production boosts sales. It is the companies responsibility to keep their employees happy, and the best way to do that is to give them more money. It makes them feel like that are really making a difference in the company, and it lets them know that all of their hard work is not being done in vain.
Milton Friedman is a supporter of freedom in corporations, but he also believes that, “it is wrong for managers to use corporate resources to deal with problems in society at large,” (Halbert & Ingulli 2012). Friedman also said that for managers to make the decision to use......

... 1. Executive Summary
The positive economic growth recorded since 1994 by the new democratic South Africa is tainted by the widening wage gap between executives and average workers. This has made South Africa one of the most unequal countries in the world.
Average Chief Executive Officer (CEO) remuneration increased by 11.5% a year from 2006 to 2009. An average worker would take 8 years to earn what a CEO earns in a 3 month period (Theuissen, 2010).
Globalisation, company acquisitions and mergers make businesses more complex and challenging to manage. Companies seek to recruit the best managers who demand higher pay (Templetion, 2007).
The involvement of the compensation committee in the setting of the CEOs remuneration may contribute to the higher pay for executives (Reh, 200- ).
South Africa has a high level of low skilled labour. Skilled workers are in high demand to drive economic growth. Also, as technology continues to advance, more skilled workers are recruited to operate the high tech machines and they demand higher wages (Sill, 2002).
The low wage paid to average workers and the large gap between executive compensation and average workers can have negative emotional effects. It also creates tension between employers and employees which may result in external reactions (Mc Clelland, 2008).
Creation of value framework for the remuneration of executives and improved wage structures for the average worker will help narrow the existing wage gap (ASA, 2010).
2.......

...however, could easily be imitated by competitors, putting grocery store chains under constant pressure to innovate and remain efficient. In general, growth required expansion into new store locations. Because most markets are already saturated with incumbent players, growth came through acquisition. The retail grocery industry is capital intensive, requiring significant investment in new stores and store models. Companies that failed to grow often went bankrupt or were acquired. Additionally, as a low-cost provider and the dominant retailer in the U.S., Wal-Mart’s presence in the grocery industry added to the pressure on all other providers to differentiate their offerings and develop new strategies to survive. This case explores executive compensation at four retail grocery stores: Safeway, Kroger, Costco, and Whole Foods. Consideration is given to each company's strategy and market position and corporate governance structure....

...Journal of Business Ethics (2009) 85:147–156 DOI 10.1007/s10551-008-9934-6
Ó Springer 2008
What’s Wrong with Executive Compensation?
Jared D. Harris
ABSTRACT. I broadly explore the question by examining several common criticisms of CEO pay through both philosophical and empirical lenses. While some criticisms appear to be unfounded, the analysis shows not only that current compensation practices are problematic both from the standpoint of distributive justice and fairness, but also that incentive pay ultimately exacerbates the very agency problem it is purported to solve. KEY WORDS: executive compensation, distributive justice, pay disparity, incentive alignment
Introduction Few academic theories have been adopted as widely as the application of agency theory (Jensen and Meckling, 1976) to the structure of executive pay in modern corporations. After prominent suggestions that the inherent conﬂict of interest that exists between stockholders and corporate managers – or ‘agency problem’ – could be mitigated through the structure of managerial incentives (e.g., Jensen and Murphy, 1990a), the prevalence and size of stock option grants to senior executives have expanded increasingly and substantially (Hall and Murphy,
Jared D. Harris, Assistant Professor teaches both Ethics and Strategy courses in Darden’s MBA program, and a doctoral seminar on corporate governance and ethics. His research centers on the interplay between ethics and strategy, with a particular......

...Executive Pay
Strategic Issues and Problems:
As a result of the current economic crises, many companies are experiencing massive financial losses. These companies are reducing salaries and cutting peoples’ jobs while executives are maintaining high compensations. Using tax payer’s money, the US Government is assisting these financially struggling companies through the Troubled Asset Relief Program (TARP). TARP was created to assist these companies to ultimately allow them to survive and prevent massive job loss. Tax payers are concerned about executives receiving a high and unjust compensation in comparison to other non-executives whom are suffering from layoffs and compensation cuts. Executive compensation is controlled by the companies’ boards that in turn work under the Chief Executives. The US Government is intervening by proposing plans to regulate the compensation of executives in these financially stressed companies.
Evaluation and Analysis:
Compensation of executives is not regulated or monitored effectively. Executives have the ability to use deceptive and manipulative practices to achieve higher unjust compensations. Boards justify the high compensations as rewarding performance, which is contradicting considering the financial status of these companies. People are becoming outraged as many are losing their jobs and are receiving salary reductions while executives are still making millions. The US government is imposing executive compensation regulations to...

...
An Assessment of Executive Compensation in Switzerland With Reference to Referendum in March 2013 on Executive Pay
Adamu Yushau Usumanu
adamuusumanu@gmail.com
This Paper is Submitted in Partial Fulfillment of the requirement for Corporate Finance and
Governance course
SMC University
School of Management
Dr. Albert Widman
January 29 , 2014
Abstract
The citizens of Switzerland in March 2013, decided in a referendum that shareholders
must determine Board Member, Chairmen and Executive pay. They also decided to
restrict proxy voting and ban severance pay, bonuses, for the purchase and sale of
companies. In addition, loans pensions, and remuneration in he form of stocks or profit
sharing must be regulated by the bylaws of the company, and finally, individual board
members, and chairmen be elected by shareholder every year and banned corporate proxy
and the representation of shareholders by depository bank.
Key Words: Corporate Governance, Executive Compensation, Referendum, Board
Introduction
The executive compensation (executive pay) is composed of the financial compensation and other non-financial awards received by an executive of a firm. It is a mixture of salary, bonuses, shares of and/or call option on the company stock, benefits, and perquisites, ideally configured to take into account government regulation, tax law,......

...EXECUTIVE COMPENSATION
1. HOW IS IT DETERMINED?
Executive compensation generally consists of a mix of four components:
- Annual Base Salary
- Annual Incentive or bonus plans tied to short-term performance measures.
- Long Term Incentives consisting in a mix of restricted stocks, stocks options and other long-term performance plans tied to shareholder return or financial performance.
- Benefits plans.
As a rule of thumb, the base salary constitutes 30% of total compensation, the annual incentive another 20%, the benefits about 10% and long-term incentives or the wealth creation portion of the compensation about 40%. Indeed, before the financial crisis, there was a lot of board attention to improving the relationship between pay and performance.
As boards sought to achieve pay for performance, one outcome of the trend was to place more emphasis on performance vested restricted stock for the top executives. Thus, an increased portion of executive compensation was primarily tied to what, in the long term, most institutional investors tend to focus on: long-term performance as measured by total shareholder return or performance metrics that drive shareholder return.
2. SHOULD EXECUTIVES RECIVE STOCKS OPTIONS?
Supporters of stock options say they align the interests of CEOs to those of shareholders, since options are valuable only if the stock price remains above the option's strike price. Stock options are now counted as a corporate expense (non-cash), which impacts......

...Session 9
Samstag, 6. September 2014 13:30
Session 9 Prep
Topic: CEO compensation
Reading • Résumé Pedro Matos, Darden Professor • Chapter 7 in Corporate Governance • Chapter 7 in Boards That Deliver • Bargain Bosses, American chief executives are not overpaid, The Economist • How to get paid like a U.S. CEO, Fortune • Executive Compensation
Corporate Governance: Chapter 7 - CEO Compensation
• Norms for CEO compensation ○ Proxy statements provide information on executive compensation and are distributed ahead of shareholder meetings ○ There is a positive correlation between firm size and total CEO compensation ○ The higher the CEO total compensation, the larger the percentage of non-cash compensation (bonus) • The Goal of executive compensation • What is good performance? ○ Current circumstances, its goals and the execution of its strategies ○ Compensation should include short- and long-term plans ○ Long-term: achieving strategic goals (e.g. financial) ○ Compensation/performance should be benchmarked against peers • Building a compensation plan ○ Peer comparison is the beginning, but should not be the only determinant of CEO compensation ○ Gradual rise of CEO compensation is due to the matching with competitive compensation as soon as one competitor increases compensation • Compensation mix ○ Base salary  Have average base salaries with at-risk copmensation when performance is superior ○ Fringe Benefits  30-50% of base salary  Medical and life insurance premiums,...

...in cost
- performance rating of manager's subordinates
- employee's own performance rating
- area of functional responsibility
3. Which of the following statements is least descriptive of why many suggestion plans have failed?
Student Answer:
- employee apathy
- failure to recognize contributions
- management lacks interest
- union members block suggestions through committee action
4. Which one of the following is not a benefit to the employer when offering an ESOP?
Student Answer:
- maintains a stable work force
- owner can sell stock to a friend
- results in a dilution of value of the stock
- ESOT can borrow money under favorable conditions
5. In contrast to compensation systems in the private sector, those for government employees are less likely to include use of
Student Answer:
- wage surveys
- job descriptions
- job evaluation
- financial incentives
6. Which one of the following statements is not true regarding a defined contribution plan?
Student Answer:
- most pension plans are defined contribution plans
- crucial to a defined contribution plan are investment and management skills
- employers assume the investment risk
- most plans have less than 100 participants
7. Which of the following is not true about a well-designed incentive scheme?
Student An
Search for more tutorials here - http://bitly.com/12BHy6o
Even though the......

...Case Report on Executive Compensation
In the modern society, chief executive officer has become the most important part to many companies especially to the publicly listed corporations. They generally make a significant contribution to the profitability of their firm. However, in some case the managers’ interests conflict with their companies’, and thus their decisions may probably do not maximize their companies’ value. Therefore, it is a problem that how shareholders ensure that top executives want to maximize their wealth. This paper explores the principle for compensation, makes an attempt to design a new compensation package to the chief executive officer of Nike, Inc., and finally compare the different between the existing pay package and the new one.
I. Introduction
Nike, which originally named as Blue Ribbon Sports, is the largest manufacturer of the athletic footwear and apparel in the world, and one of the Fortune 500 companies. Figure1 shows that Nike is the leader of the global athletic footwear market, with around 31% market share in 2007. Creating by Bill Bowerman and Philip Knight in 1962, its early products are footwear, but now it has a wide range of product line. Today Nike is engaged in design, development and marketing of footwear, apparel and equipment, including shoes, sock, gloves, bags, and sports balls and so on. Many of its products are design for specific athletic such as football, basketball, running and even walking. According to figure2,...

...Regulation of Executive Compensation and its impact on the stability of the financial system
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Introduction
In corporate circles, the financial crisis and its effect on companies is sometimes illustrated as a systematic phenomenon in which there is no individual responsibility. Public discussion, on the contrary often assigns the blame of the crisis to bankers or managers, and suggests conclusions of salary reductions or individual liability in terms of losses. In this paper the implications of executive compensation surrounding the financial crisis will be debated. Firstly, the types of executive compensation will be discussed and the implications of them. Secondly, how executive compensation contributed to the financial crisis will be conferred and thirdly the legal improvements and current process will be analysed. To aid understanding, articles and examples will be used to emphasise the various views of economists regarding executive compensation.
Non-Regulation of Executive Compensation
Executive Compensation can be described as the monetary bonus, or the non-monetary benefits which an executive receives for their work in an organisation. Executive Compensation can be a highly motivating incentive to work more efficiently, thus benefiting the organisation and keeping the executive content with his contribution and performance. However, this compensation can have adverse effects where the executive does not have the organisations best interest in mind,......

...THE MANAGEMENT OF EXECUTIVE COMPENSATION
Posted on November 16, 2011
1
EXECUTIVE COMPENSATION
Notes on
THE MANAGEMENT OF EXECUTIVE COMPENSATION…..
Executive compensation is the total remuneration or financial compensation a top executive receives within an organization. This includes a basic salary, any and all bonuses, shares options, and any other company benefit. Over the past three decades, executive compensation has risen dramatically beyond the rising levels of an average worker’s wage.
Executive compensation is an important part of corporate governance, and is often determined by a company’s board of directors.
Executive compensation is a very important thing to consider when evaluating an investment opportunity. Executives who are improperly compensated may not have the incentive to perform in the best interest of shareholders, which can be costly for those shareholders.
While new laws and regulations have made executive compensation much clearer in company filings, many investors remain clueless as to how to find and read these critical reports. This article will take a look at the different types of executive compensation and how investors can find and evaluate compensation information.
WHO IS AN EXECUTIVE?
A person or group having administrative or managerial authority in an organisation. The chief officer of a government, state or political division.
Chief executive officer (CEO), one of the highest-ranking corporate officers (executives) or......

...Executive Compensation: The Ethical and Impact Challenge
Executive Compensation: The Ethical and Impact Challenge
Executive compensation is defined as the reward given to corporate executive employees for their job performance. Corporate executive employees are the higher echelon company employees and may include the chief financial officers, chief executive officer, upper level managers and the company president. Executive compensation mostly consists of base salary, bonuses, long-term incentives benefits, and prerequisites whose main purpose is to motivate the executives to steer the company to profitability and make decisions with the best interest of the organization. Executive compensation has been on an upward rise especially within the last few decades reaching to unprecedented levels. Worse still, executive employees’ salaries and benefits have increased at a significantly higher rate as compared to other employee’s compensation consequently raising controversy not only of the ethical issues but on issues of equity and efficacy of the high compensation in motivating the executive’s performance.
The paper thus posits that the increased executive salaries are not only unethical but are not a reflection of executive performance nor are they correlated to executives performance and as such other options of......

...Executive Compensation: Do you get what you pay for?
Some would say that top executives are not overpaid. This side of the argument is based on the premise that top executives are paid well, but not overpaid. Many people see CEO pay packages but do not look further to see that a CEO's pay is not the whole story. What are the factors that might support a high executive compensation package?
It is usually the most extreme cases of overpay that hit the press. Proponents of the argument that top executives are not overpaid state that most of the complaints about executive compensation center around extreme cases of overpay, and such cases blind us to the fact that the majority of executives are paid fairly.
One example of this is the case of Lee Raymond, former head of Exxon Mobile. When he retired from the company in 2006, the price of gasoline at the pump was high, $3 per gallon, much to the consternation of consumers. Yet Exxon Mobile rewarded Raymond with a record retirement package--a "golden parachute," as it is known--to the tune of $400 million. The combination of exorbitant CEO pay and painfully high gas prices rubbed most observers the wrong way. A similar situation occurred in the case of Robert Nardelli of Home Depot. When Nardelli retired in 2007 with a pay package worth $210 million, the company he headed had just gone through several straight years of relatively poor performance. People wanted to know why the chief executive received such an exceptional payout...